Korea Electric Power (KEP) - 2022 Q4 - Annual Report

Fuel Costs and Pricing - In 2022, fuel costs constituted 34.4% of the company's cost of sales, with the ratio of fuel costs to sales at 49.1%[35] - The average weekly spot price of Newcastle coal increased from $84.77 per ton in 2021 to $179.13 per ton in 2022, then decreased to $123.26 per ton as of April 7, 2023[35] - The average daily spot price of Dubai crude oil rose from $69.01 per barrel in 2021 to $97.03 per barrel in 2022, then decreased to $85.25 per barrel as of April 7, 2023[37] - In 2022, the company incurred operating and net losses of Won 32,241 billion and Won 24,429 billion respectively due to rising fuel prices[45] - Approximately 91.8% of the company's bituminous coal requirements in 2022 were purchased under long-term contracts, with 8.2% sourced from the spot market[35] - The company implemented a new cost pass-through tariff system on January 1, 2021, to enhance transparency in billing fuel costs[38] - The maximum adjustment for the Fuel Cost Adjusted Charge is limited to Won ±5 per kilowatt-hour from the Base Fuel Cost[39] - The company increased the Usage Charge by Won 11.4 per kilowatt-hour in January 2023 to reflect a portion of the increase in the Base Fuel Cost[44] - The government announced plans to normalize the tariff in stages to resolve the cumulative deficit by 2026, though no assurance is provided on the timeline[44] - The company faces risks related to fuel price volatility, which could adversely affect profit margins and lead to operating losses if tariffs are not adjusted accordingly[45] Energy Policy and Capacity Expansion - The Tenth Basic Plan aims to increase nuclear generation capacities from 26.1 gigawatts in 2023 to 31.7 gigawatts by 2036, while reducing coal generation capacities from 40.2 gigawatts to 27.1 gigawatts during the same period[53] - Domestic renewable energy generation capacity is projected to expand from 32.8 gigawatts in 2023 to 108.3 gigawatts by 2036[53] - The Government plans to retire 28 coal-fired power plants with a total capacity of 14.1 gigawatts and convert them to LNG by 2036[53] - The introduction of carbon-free power sources is expected to reach 47.4 terawatt-hours in 2036, accounting for 7.1% of total annual power generation[53] - The capacity expansion plans are based on the Basic Plan, which is revised every two years, with the latest revision announced in January 2023[53] - The Renewable Portfolio Standard target percentage is set to increase from 13.0% in 2023 to 17.0% by 2027[68] - The Renewable Energy 3020 Plan aims to increase the share of renewable energy in total electricity generation from 7% in 2016 to 20% by 2030[72] Environmental and Regulatory Compliance - The national target emission level for 2030 is set at 436.6 million tons, representing a 40% reduction compared to 2018 levels[66] - The Transformation sector's target emission level for 2030 is 145.9 million tons, indicating a 45.9% reduction from 2018[66] - The government has mandated annual sector-specific greenhouse gas reduction targets for the next 20 years, from 2023 to 2042[66] - The company has engaged in voluntary regulations to lower the output of coal-fired generation units, with a cap of 80% on output for some units[66] - The company is subject to the Serious Accident Punishment Act (SAPA), which imposes criminal liability for serious accidents and could lead to punitive damages of up to five times the actual damages[116] - The company may face increased compliance costs due to government initiatives, which could adversely affect its financial condition and cash flows[76] Financial Performance and Investments - In 2022, the company reported sales of Won 70,546 billion and a net loss of Won 24,429 billion, compared to sales of Won 60,012 billion and a net loss of Won 5,216 billion in 2021[173] - The company announced a capital expenditure of Won 15,485 billion, Won 13,964 billion, and Won 13,886 billion for the years 2020, 2021, and 2022 respectively, with budgeted capital expenditures for 2023, 2024, and 2025 amounting to Won 16,927 billion, Won 16,306 billion, and Won 17,908 billion[79] - The company is subject to a new debt ceiling that allows total outstanding debt securities to be no greater than five times the sum of its share capital and reserves, effective until December 31, 2027[81] Market and Geopolitical Risks - The company is exposed to cyber security risks, including targeted attacks that could adversely impact its business and financial condition[128] - The U.S. and allied countries have imposed extensive sanctions on Russia, including a ban on the importation of Russian crude oil and certain petroleum products[132] - Sanctions may require the company to restrict or modify operations related to Russian fuel products, impacting procurement and contractual terms[133] - Ongoing sanctions could lead to increased global prices for fuels such as coal, uranium, and LNG due to supply curtailment[135] - The company faces risks related to compliance with economic sanctions, which could result in administrative, civil, or criminal penalties[135] - The COVID-19 pandemic continues to pose uncertainties that may adversely affect the company's operations and financial condition[136] - Economic conditions in Korea and globally, including inflation and rising energy prices, could materially impact the company's business[140] - The company is subject to political and economic risks specific to Korea, which are closely tied to global economic developments[139] - Tensions with North Korea may adversely affect the company's market value and operations[145] Corporate Governance and Ownership - The Korean government holds a 51.1% ownership stake in the company as of December 31, 2022, through direct and indirect holdings[169] - The company is required to have at least 51% of its issued capital stock owned by the Government, which may limit its ability to raise share capital without government participation[122] - The company is subject to a 40% ceiling on acquisitions of shares by foreign investors, with a 3% ceiling for single investors[156][157] - The company has consented to the deposit of outstanding shares of common stock as long as the number of American depositary shares does not exceed 80,153,810 shares[154] Operational Challenges and Labor Relations - Approximately 74.0% of the company's employees were members of labor unions as of December 31, 2022, indicating potential labor unrest risks[99] - The government has pledged to reduce non-permanent workers and increase permanent employment, which may lead to increased costs for the company[101] - The company has faced social and political opposition to the construction of facilities, which has delayed project timelines[112] Future Strategies and Innovations - The company aims to achieve carbon neutrality by 2050 through power grid innovation and enhancing grid stability with advanced systems[176] - The company plans to expand clean energy supply and improve demand-side energy efficiency by collaborating with subsidiaries and independent power producers[176] - The company intends to transform its overseas business portfolio to focus on eco-friendly projects and end overseas coal-fired generation projects[182] - The company is committed to securing core technologies necessary for achieving carbon neutrality through aggressive R&D investment and collaboration with industry stakeholders[182] - The company aims to promote digitalization across its supply chain to enhance operational efficiency and develop new customer service models based on data platforms[182]